Copper prices, once driven to record highs by a combination of positive macroeconomic data from China and the US in March and expectations of tight copper mine supply, have now faced a significant correction. This comes as US manufacturing activity slowed for the second consecutive month in May, raising concerns about global demand and weakening market sentiment. High copper prices have suppressed domestic downstream demand, pushing domestic copper inventories to new highs for the year. LME copper inventories rose to their highest level in over a month on June 4, and the high inventory levels have started to weigh on copper prices. Both LME and SHFE copper saw significant price declines, with LME copper closing below $10,000/mt for the first time in over three weeks. As of the close of daytime trading on June 5, SHFE copper fell by 2.44% to 80,060 yuan/mt. As of 15:32 on June 5, LME copper fell by 0.45% to $9,900.5/mt.
Macro Perspective
US manufacturing activity slowed for the second consecutive month in May, and US construction spending fell for the second consecutive month in April. On Monday, data showed that the US Institute for Supply Management (ISM) manufacturing PMI fell to 48.7 in May from 49.2 in April, having reached an 18-month high of 50.3 in March. The market is now awaiting Friday's non-farm payrolls data to gauge the health of the US economy and seek more clues about the Fed's rate cut plans. According to the CME's FedWatch tool, traders currently see about a 65% chance of a rate cut in September.
According to an SMM survey, as copper prices fell, spot discounts have continued to narrow. Especially after SHFE copper fell below 81,000 yuan/mt, downstream procurement demand increased, together with the upcoming Dragon Boat Festival holiday, leading to a rebound in spot market transactions.
SHFE Spot Copper: On June 5, #1 copper cathode spot prices for the 2406 contract were quoted at a discount of 60 yuan/mt to 30 yuan/mt, with an average discount of 45 yuan/mt, up 25 yuan/mt from the previous trading day. As copper prices fell again, sellers were optimistic about future consumption growth, and spot premiums continued to rise. However, high inventory and warrant levels still suppressed premiums. SMM expects spot premiums to rise slightly on June 6 but remain below zero.
South China Spot Copper Market: On June 5, Guangdong inventory increased for the 10th consecutive day, mainly due to high shipments arrivals. On the 5th, as copper prices fell sharply, sellers actively raised prices, pushing spot premiums higher. Additionally, with the Dragon Boat Festival holiday approaching, some downstream buyers needed to restock, contributing to the rise in premiums. As of 11:00 on June 5, high-quality copper was quoted at a discount of 40 yuan/mt, standard-quality copper at a discount of 100 yuan/mt, and hydro copper at a discount of 200 yuan/mt. Furthermore, large quantities of hydro copper and non-standard copper flowed into the market, widening the price spread between hydro copper and standard-quality copper, with downstream buyers preferring low-priced copper.
North China Spot Copper Market: On June 5, North China #1 copper cathode spot prices for the current month contract were quoted at a discount of 340 yuan/mt to 180 yuan/mt, with an average discount of 260 yuan/mt, up 30 yuan/mt from the previous trading day. Transaction prices were 79,820-80,200 yuan/mt, with an average price of 80,010 yuan/mt, down 1,570 yuan/mt from the previous trading day. As copper prices fell sharply, downstream procurement sentiment improved, processing enterprises' operating rates rebounded, and spot discounts continued to narrow, increasing market activity.
Domestic Copper Inventories Hit New Highs for the Year, LME Copper Inventories Reach Over One-Month High of 120,000 Tons
According to an SMM survey, as of Monday, June 3, SMM copper inventories in national mainstream markets increased by 5,300 tons from last Thursday to 448,800 tons, continuing to hit new highs for the year. Total inventory was 341,900 tons higher YoY. SMM expects this week's imported copper arrivals to be lower than last week, and domestic copper arrivals will not increase significantly, leading to a slight decrease in total supply. On the downstream consumption side, with copper prices falling and the Dragon Boat Festival holiday approaching, downstream procurement is expected to increase this week. Therefore, SMM believes that this week will see a decrease in supply and an increase in demand, potentially leading to a slight decline in weekly inventories.
Three Major Exchanges' Copper Inventories: According to the latest data from the Shanghai Futures Exchange, as of the week of May 31, SHFE copper inventories continued to accumulate, increasing by 6.89% to 321,695 tons, reaching a four-year high.
The latest inventory data from the London Metal Exchange (LME) showed that after a significant increase of 2,950 tons on June 4, LME copper inventories continued to rise by 1,050 tons on June 5, reaching a one-month high of 120,000 tons.
On June 4, COMEX copper inventories continued to decline, with the latest inventory level at 15,674 short tons.
Outlook
In summary, copper cathode supply remains ample. The increase in downstream consumption due to falling copper prices and the planned exports from domestic refineries in June may lead to a decline in domestic weekly copper inventories. Whether this can become a turning point for copper inventories depends on whether copper consumption can continue to rebound and the destocking efforts. However, the medium and long-term supply shortage of copper ore will provide fundamental support for copper prices.
Institutional Views
China Fortune Futures Research Report: Macro sentiment continues to decline, and as the financial attributes of commodities weaken, their commodity attributes return. The market needs to further digest the high inventory situation caused by sluggish downstream demand due to high prices, and the short-term weak trend is expected to continue.
Anxin Futures Research Report: On Wednesday, SHFE copper positions increased, reflecting increased adjustment and competition. US factory orders and job openings once again boosted the pace of rate cuts. From a supply perspective, domestic copper production slowed, and the possibility of unwrought copper imports being attracted to COMEX copper warehouses, along with some refineries fulfilling previous export orders, led to a decline in overall domestic refined copper supply, contributing to a turning point in social inventories. However, the rebound in consumption has some uncertainty, as copper consumption enters a low season. There can be a potential lag in demand behind the high growth rate of power grid investment. SHFE copper still has the probability of falling below the 80,000 yuan/mt mark.
Goldman Sachs expects that once the limited inventory of cheap substitutes is exhausted, copper prices will resume a significant upward trend, rising an additional 15% to $12,000/mt by the end of the year.
UBS Group expects copper prices to reach $11,500/mt by the end of the year and $12,000/mt or higher by mid-2025.
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